Columbiana Circuit Court.

The only conclusion that we can arrive at under the testimony is, that there has been no substantial injury to the parties plaintiff by the erection of this pole and wires, as they now are. There is no substantial injury shown to the ingress and egress of the property, or to the plaintiff's right to light or air. And for that reason this case will be dismissed.

Of course it is disposed of solely upon the testimony as now offeredthe condition of affairs as they now exist. If the telephone company should hereafter make such changes, or additions, as would substantially interfere with the enjoyment of the property of the plaintiffs, either in the obstruction of ingress and egress to the property, or of the light or air, then a remedy would accrue to them; but, under the circumstances of this case as they now are, they do not show any substantial injury in either of those regards, and hence no right to the injunction asked for can be granted.

There is a matter included in the general statement, as to which, perhaps, a definite statement had better be made. The right of ingress and egress is not confined simply to the surface of the land, or to a door. It applies equally to doors above the surface through which merchandise packages are taken; such as plaintiffs have in the second and third stories of their building facing Lundy street. The evidence does not disclose any substantial injury to the use of these doors, or interference therewith. The distance between the wires as now strung, and those doors, is sufficient to take up any ordinary package free and clear of the wires. Of course, if the telephone company should, by placing wires so near to these doors as to interfere with the lifting and conveying of merchandise in packages, or other things, to the floor above, that would be a matter for future consideration. It appears that these doors open outward, out into the open air, instead of, as is ordinarily done, opening inward. At one time it seems there was a wire there that interfered somewhat with the opening of the upper door, but that was taken away, and now the way seems to be clear for taking anything desired into or out of the door, and no substantial interference with the plaintiffs' rights, in that regard, now exist.

The petition will be dismissed.

CORPORATIONS-CONDITIONAL SUBSCRIPTIONS.

[Licking Circuit Court, March Term, 1901.]

Douglass, C. J., Voorhees and Donahue, JJ.

GEORGE C. STUNT V. NEWARK Weldless TuBE & STEEL Co. 1. CONDITIONAL SUBSCRIPTION TO STOCK, WHEN NOT CONDITION-PRECEDENT. In a contract between a subscriber and a corporation for shares of the capital stock in the company, which provides that the subscriber shall be given a position in the company that will pay him two dollars a day or better, and on failure to comply therewith, the subscription to be null and void, such stipulation for employment contemplates that the subscriber will become a stockholder before he will be employed, and that compliance by the corporation with the condition is not to be regarded as a condition precedent to his becoming a member of the corporation. Such a provision or condition for employment is an independent stipulation, for the breach of which the remedy would be in damages, and not to recover back the subscription paid.

Stunt v. Tube & Steel Co.

2. SUCH A STIPULATION IS A CONDITION SUBSEQUENT.

A stipulation in a contract with a subscriber to the capital stock of a corporation which provides that the subscriber shall receive, in addition to his stock shares, a position in the company as employee, and will pay him a fixed sum per day, is a condition subsequent, and the non-performance of the condition will not work a dissolution of the relation of the subscriber to the company as a stockholder in the corporation.

8. SUCH A STIPULATION COMBINES TWO CONTRACTS.

A subscription to the stock of the corporation on such a condition for employ ment is an agreement combining two contracts; one the contract of subscription; the other an ordinary contract of the corporation to perform the specified act of giving the employment. The subscription is valid and enforceable, whether the condition as to employment is performed or not. The condition is the same as a separate collateral contract between the corporation and the subscriber, for breach of which an action for damages is the remedy.

4. CONDITIONAL SUBSCRIPTIONS AGAINST PUBLIC POLICY, WHEN.

A contract with a subscriber to the capital stock of a corporation which attempts to secure advantages and privileges not common to all other stockholders or subscribers, and without their knowledge and consent, is contrary to public policy, and can have no effect to limit in any way his contract of subscription, and in so far as it attempts to do so will be treated as a fraud upon other stockholders not consenting thereto.

HEARD ON ERROR.

Kibler & Kibler and Smythe & Smythe, for plaintiff.

J. M. Swartz, for defendant.

VOORHEES, J.

The plaintiff's cause of action is founded upon a contract, and he seeks to recover from the defendant, a corporation, the amount paid by him as subscription to the capital stock of the company. The petition avers in substance, that the plaintiff agreed to buy fifty shares of the stock of the company at torty dollars per share, aggregating the sum of two thousand dollars, which was paid in tull. That by the contract, the defendant agreed, as a part of the consideration for the purchase of the stock, that it (the corporation) would give him a position in said company that would pay him two dollars per day or better, and to be advanced as his abilities would warrant, and if said company failed to comply with said condition the said subscription should be nuii and void. That after the company was organized he demanded of the company employment under said contract, which was refused; and by reason of the company's violation of the contract, this action is brought to recover the subscription paid by the plaintiff for the stock of the company so purchased.

To the petition a general demurrer was interposed which raises the question whether or not such a contract is legal and can be enforcer., giving the plaintiff the remedy sought to be enforced in this action. The common pleas court sustained the demurrer and dismissed the petition, and the case is in this court on petition in error.

The contention of the plaintiff is, that the promise of the company to give him employment was a condition precedent, and by its failure to comply with the condition of the contract, which by its terms was to become null and void, a cause of action to recover back from the company his subscription accrued to him.

Licking Circuit Court.

The controversy concerns the validity of such an agreement between a subscriber and the corporation. There are undoubtedly a class of cases where subscriptions to initiatory stock upon special terms, not prohibited by the charter, and not in contravention of any clearly defined public policy, have been held valid as between the subscribers and the corporation.

The corporation having refused to execute or comply with this agreement to furnish employment to the plaintiff, does it give him the right against the corporation to recover back his stock subscription?

This raises the question whether his subscription is to be regarded as one upon a condition precedent or subsequent. Plaintiff does not aver that he subscribed upon condition that before he should be required to pay for the shares he was to secure employment. On the contrary he alleges: 'That on or about the 17th day of February, 1897, the defendant and the plaintiff entered into a written contract duly delivered, by which the plaintiff agreed to purchase fifty (50) shares of the capital stock of said company, at the agreed and authorized price of forty dollars for each share of fifty dollars, amounting to the sum of two thousand dollars, payable in installments, viz: within ten days after receiving notice from said company that 1,500 shares of 2,250 shares of said capital stock had been subscribed for, 25 per cent. of said subscription, 30 days thereafter 10 per cent. more of said sum of two thousand dollars, in 30 days more 15 per cent. more thereof, in 30 days more 20 per cent. additional and at the end of 30 days more, or whenever called for thereafter, 30 per cent. of the balance of said subscription." * * * That afterwards and before the company had fully constructed or finished its plant and was ready to commence to manufacture its tubes, etc., to-wit on and by the 5th day of October, 1897, the plaintiff paid said company and said company received the full amount of two thousand dollars.

He clearly contemplated that his subscription should be paid before any position or employment was or could be secured to him in the company; for the position or employment contemplated was in the company. after it became a going concern, and this could not be accomplished except upon the supposition that the capital stock, or a part at least, should be paid in and then invested in a plant to be operated by the company. When a subscription is taken distinctly upon the condition that it is not to be binding until a stipulated thing is done, then such a subscriber does not become a stockholder, and is not entitled to the rights or charged with the burdens of a stockholder, until the conditions have been complied with.

Concerning conditional subscriptions, the Supreme Court of Tennessee, in Railroad v. Parks, 2 Pickle, 560, say: "The capital of stock companies consists of their stock subscriptions. This is the basis of credit, and an essential to organization. This is a trust fund for the benefit of creditors in case of insolvency. Conditional subscriptions to the stock of corporations are unusual and often operate to defeat subscribers who become such absolutely and upon the faith that all of the stock is equally bound to contribute to the hazards of the enterprise. It misleads creditors, and is the fruitful source of litigation and disaster. Tending to the exsuarement of creditors and contrary to a sound public policy, conditional suoscriptious to corporate shares ought not to be encouraged."

Stunt v. Tube & Steel Co.

A condition subsequent is defined by Mr. Cook in his work on stock and stockholders: "A subscription on a condition subsequent contains a contract between the corporation and a subscriber, whereby the corporation agrees to do some act, thereby combining two contracts; one the contract of subscription, the other an ordinary contract of the corporation to perform cert in specified acts. The subscription is valid and enforceable, whether the conditions are performed or not. The condition subsequent is the same as a separate collateral contract between the corporation and the subscriber, for breach of which an action for damages is the remedy." Cook on Stock and Stockholders, Sec. 78.

The principle is recognized by the Supreme Court, in Chamberlain v. Railroad Co., 15 Ohio St., 225, at page 247, the court say: "The conditions referred to may be either precedent, or subsequent. Of the former class we see no objection to the subscriber inserting such as he may choose. Until they are performed the relation of the subscriber to the company as a stockholder does not arise. But, after that relation is established, whether the non-performance of a condition subsequent would work its dissolution is a different question. It may be that all such conditions as these last named, should be viewed, as between the corporation and the subscriber, in the light of stipulations merely, and that, in case of their non-performance, he should be left for redress to the ordinary remedies for breaches of contract."

The provision of the contract in question, as to giving the plaintiff a position or employment in the company when the company became operative, "that would pay him two dollars a day or better," is to be regarded as a stipulation on the part of the company, which in accepting the subscription in the terms proposed, it undertook to perform. The plaintiff's right to require its performance, though arising out of the same contract as the stock for which he subscribed, does not attach to him as a stockholder, but as a contractor. And whatever might be his rights with regard to this stipulation in a controversy between him and the compauy in an action for damages for a breach of the contract, it does not give him the right to recover back his subscription to the capital stock of the corporation.

The vital question in such case is, whether or not a corporation can secure privileges to one stockholder, who subscribes to its stock, in giving him special terms not to be enjoyed by other stockholders?

"Managing agents of a corporation have only a very limited authority to make special agreements varying the rights and duties of the several shareholders. This follows from the relationship between the shareholders and the character of their contract. The subscribers for shares have agreed to associate for the purpose and upon the terms expressed in their charter or articles of association. The rights of every subscriber in the management of the company and the distribution of its profits are equal to the rights of every other shareholder in respect to every share; and it is clearly contemplated by the subscribers that the burdens shall be distributed equally also. An agreement giving one subscriber greater privileges, or making his obligations lighter than those of the other subscribers, would be unfair to those members who had subscribed upon less favorable terms. Hence it is very difficult to imply any authority in the agents of a company to vary the ordinary contract of membership, in any substantial particular, by assenting to a subscription upon special terms." Morawetz on Corp., Sec. 87.

Licking Circuit Court.

In the contract set out in plaintiff's petition there are special terms given to him which are not given to the subscribers generally. All the subscribers to the stock are not promised employment at a fixed or any price per day, binding the company to its performance, and on failure the contract to be null and void. In Henry v. Railroad Co., 17 Ohio, 187, it is held: "An agreement attempting to secure any stockholder the privilege of paying up subscriptions in store goods or otherwise, except in money, will be treated as a fraud upon stockholders and payment in money enforced." In Noble, Adm'r, v. Callender, 20 Ohio St., p. 199, it was held: "A subscriber for shares of stock in a railroad company, which is not authorized by law to receive land in payment for its stock, cannot, in an action against the stockholders of the company, by its creditors, set up or avail himself of the benefit of a collateral agreement between himself and the company, to the effect that the amount of his subscription was to be paid in land." In Gates, Admr., v. Tippecanoe Stone Co., 57 Ohio St., 60 [48 N. E. Rep., 285; 63 A. S. Rep., 705], referring to the case in Noble, Admr., v. Callender, supra, at page 75, say: "In this case the contract to pay the subscription in land was contemporaneous with the subscription, and the subscription would not have been made, had it not been payable in this way, and yet it was not allowed to prevail."

The general principle of law undoubtedly is, that contracts made between an incorporated company and its stockholders, when special privileges are given to the subscriber limiting his liability or securing him privileges which are not given to the stockholders generally, are contrary to public policy and can have no effect to limit in any way their contracts of subscription, and in so far as they attempt to do so will be treated as a fraud upon such other stockholders not consenting thereto. It is not claimed or averred in the petition that the other stockholders of defendant company knew or consented to the conditional contract of plaintiff, whereby he was promised employment, nor is it alleged in the petition that the plaintiff relied upon the contract as to employment in making his subscription. When material facts are not alleged in a petition, in testing the pleading upon demurrer, they are to be assumed most strongly against the pleader. Ashbrook v. Hite, 9 Ohio St., 357, 361 [75 Am. Dec.. 468].

The principle that an agreement between one subscriber to the stock of a corporation and the company, made concurrently with the making of the subscription, which purports to annul its obligation or materially limit and change the liability of the subscriber to the detriment of the company, is invalid and void, is founded, says Mr. Beach, " upon the doctrine that a subscription to the stock of a corporation whose stock is open for general subscription, is not only an undertaking between each subscriber and the company, but between him and all other subscribers to the common enterprise; and that each subscriber has the right to suppose that the subscription of every other subscriber is a bona fide undertaking according to its terms. Their respective subscriptions are contributious or advances for a common object. The action of each in his subscription may be supposed to be influenced by that of the others, and every subscription to be based on the ground that the others are what, upon their face, they purport to be." 2 Beach on Private Corporations, Sec. 5368.

From the allegations of plaintiff's petition it cannot be questioned, under his contract of subscription and in paying for his stock, he